NEW YORK -- The cell phones are ringing. With long-term interest rates at five-year lows, everybody wants 10 minutes with their mortgage banker or broker to figure out whether they should refinance their home.
Increasingly, the answer is "yes," said Nagy Henein, president of Greater Mortgage Corp. in New City. "I get calls mainly from clients we did loans for about a year ago, when rates were in the 8 (percent range)."
A powerful bond market rally has chopped interest rates, dropping the national average for 30-year fixed mortgages to 6.94 percent this week, according to Freddie Mac, the government-created corporation that buys and packages home mortgages for resale. That's down from 7.03 percent last week and a 1997 peak of 8.18 percent last April.
"This is outstanding news for people who have mortgages," said David Berson, chief economist at Fannie Mae, which also resells bundled home mortgages. Rates on 30-year fixed mortgages have been lower than the current rate for only 12 weeks out of the past 27 years, Mr. Berson said.
It's not outstanding news for holders of more than $1 trillion in mortgage-backed securities, bonds that are backed by homeowners' mortgage payments. When homeowners refinance, they pay off the outstanding loan early. Some of that money goes back to mortgage-backed securities holders in the form of early retirement of their bonds. The risk to them is that "they'll have to reinvest that money at a lower interest rate," said Freddie Mac chief economist Robert Van Order.
Refinancings now comprise 45 percent of loan originations, according to the Mortgage Bankers Association. That's up from 27 percent in January 1997 but below the 51 percent rate in February 1996. The highest level was 63 percent in September 1993, the trade group said.
Despite all the buzz, the question of whether to refinance is not simple, the brokers said.
There are costs to consider, including application fees, mortgage taxes, attorneys and appraisers' fees, and fees for credit reports. Ann Bose, president of Estate Funding Inc. in Woodland Hills, Calif., advises her clients that unless they can recoup those costs in 24 months, a refinancing is not worth doing.
There are other potential problems.
Mortgage bankers are struggling with the question of how much refinancings will cut into their servicing income, if the low rates enable competitors like mortgage brokers to steal away their business.